Household items may get expensive in coming months; outlook for food inflation uncertain: RBI

RBI said that the monetary policy has to keep a constant vigil on price movements, especially as they can translate into generalised inflation.

The prices of retail items in India may further rise in the coming months as the Reserve Bank of India said that disruptions in food and manufactured items’ supply chains could amplify sectoral price pressures. The RBI in its annual report added that heightened volatility in financial markets could also have a bearing on inflation. The central bank further said that the short-term outlook for food inflation has turned uncertain. After the RBI in its latest Monetary Policy Committee meeting maintained status quo on the interest rates on the back of rising inflation, it said that the monetary policy has to keep a constant vigil on price movements, especially as they can translate into generalised inflation.

The CPI inflation in the month of July shot up to 6.93 per cent, which is beyond the RBI’s comfort. The rise in the overall inflation was mainly driven by high food prices, which rose at a pace as high as 9.62 per cent in the month. However, in the monetary policy review released earlier this month, RBI had said that the retail inflation is expected to be at elevated levels during the second quarter, but may ease in the second half of the current fiscal year.

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Also, the inflation, which was high at 6.7 per cent in Q4 FY20, is projected to ease till Q4 FY21. Nevertheless, the Reserve Bank’s survey for the month of July indicated that consumer confidence fell to an all-time low, with a majority of respondents reporting pessimism relating to the general economic situation, employment, inflation, and income.

Meanwhile, despite being the most volatile item, seasonality in onion prices has declined significantly over the years, partly reflecting improvement in cold storage facilities, RBI said. As the coronavirus pandemic spread across the globe, all commodity prices dipped. The shutdown of industries in China in February 2020 and later in Europe and the US, led to a fall in demand for metals, easing their prices, the report added.